Without Disruptive Innovation, Many IP Law Firms Destined to Meet Same Fate As Buggy Whip Makers

A possible upside to the recent economic downturn is that many previously accepted business models are being revealed as in need of substantial reinvention or even total elimination. The billable hour/leverage law firm model for legal services is one of these increasingly maligned business models, and is now appearing to be in danger of ending up in the dustbin of history. Specifically, even those who benefit handsomely from the billable hour, such as the Cravath firm’s many $800 per hour lawyers, now realize the fundamental irrationality of charging a client for time spent instead of value provided. This alone should signal that change is in the air.

Notwithstanding the growing conversation about the need for alternative client service models, I fear that the majority of IP law firms will either try to ignore the desire for change or will respond by offering only incremental modifications to their existing methods of providing legal services to their clients. As someone with considerable experience dealing with IP lawyers, I believe that, unfortunately, the conservative nature of most IP attorneys means that IP firms will likely lag behind in client service innovations. Thus, I am of the opinion that many prestigious and historically highly profitable IP law firms will in the foreseeable future cease to exist.

I reach this conclusion as a result of various salient experiences. In one of these, several years ago, I approached a managing partner of a well-known IP law firm with suggestions of how to decrease the number of attorney hours expended on client matters. At that time, the firm was beginning to experience considerable push back from clients about the cost of routine legal services. I noted to the managing partner that he could lower the cost non-substantive e.g., administrative client IP matters, by assigning such tasks to lower billing paralegals. His response to this idea: “If paralegals did the work, what would the 1st and 2nd year associates do?”

Of course, the central premise of the managing partner’s response was that in order to keep the gears of the firm’s billable hour/leverage partner model turning smoothly, he needed to keep the young associates busy billing by the hour. The existing paradigm of his law firm required that it keep hiring associates to increase partner leverage and ensure that they efficiently billed clients by the hour, with a significant portion of each associate’s billed time directly going into the partner’s pockets. Left out of this business model was whether the clients’ best interests were properly served by the model that best served the law firm’s partnership.

Clearly, this law firm was not well managed, which might serve as an excuse for the managing partner’s self-serving perspective on client IP legal services. However, my experience as a corporate buyer of IP legal services further revealed that that the billable hour/leverage partner business model was an arrangement that frequently ut the client–which was now me–after the law firm’s interests.

As an in-house counsel spending several $100K’s per year for legal services at a number of respected IP firms, I consistently felt that when I called outside counsel for assistance the first thought that popped into the lawyer’s mind was “So glad she called–I wonder how much work this call is going to lead to?” More often than not, I got the sense that my outside IP lawyers viewed my legal concerns as problems for them to solve on a per hour basis, not as issues that might affect the profits of the company for which I worked. The difference is subtle, but critical: the context of the former is lawyer as a service provider, whereas the latter is lawyer as a business partner.

Against these experiences, I was not surprised at what I heard recently when discussing my feelings about the billable hour/leverage model with a partner friend at one of the top IP specialty law firms in the US. This partner echoed my sentiments about the need for innovation in IP client services. However, she also indicated that most of her firm’s partners do not recognize that there is a problem with the way they currently provide IP legal services to their clients. As she told it, many of her more senior partners have been living well on the billable hour/leverage model, so they currently see little need to modify their behavior. My partner friend nonetheless realizes that her law firm is critically ill and is likely to soon experience something akin to sudden cardiac arrest. Sadly, she is not a member of her law firm’s management and, since there is no upper level recognition that change is needed, it would serve little purpose for her to raise her concerns to those partners who could effect change (and would probably not be politically expedient for her to do so).

The failure of these currently well-compensated IP law firm partners to recognize the shifting winds of their client’s acceptance of their billing practices–the fundamental basis of their law firm’s business model–mirrors the response of entrenched interests throughout history to innovations that did not mesh with their existing business model paradigm. Moreover, the inability of many IP law firms to recognize the climate for change leads me to believe that many of these venerated law firms will soon meet the fate of buggy whip manufacturers if they do not innovate in the manner by which they provide legal services to their clients.

Playing out this analogy, buggy whip manufacturers met their demise because they thought they were in the buggy whip business when they were actually in the transportation business. When buggy whips became obsolete, so did these formerly prosperous manufacturers. Notably, buggy whip manufacturers possessed the ability to change and thrive in the new world of the automobile. They already held strong business relationships with the buggy manufacturers that became the first automobile companies. They also employed skilled craftsmen who could have turned their efforts to making leather seat covers or other aspects of the automobile. These buggy whip manufacturers needed only to accept that they needed to ride the wave of innovation occurring at that time and reinvent themselves as suppliers to automobile manufacturers instead of buggy makers.

Like buggy whip manufacturers, I believe that many lawyers have become so entrenched in the law firm business that they have effectively forgotten that they are first legal services providers. As people charged with ensuring the continued vitality of the business, law firm lawyers often become primarily fee generators in that the fees are obtained from billing clients by the hour for legal services. Care and feeding of the law firm and its partners by ensuring constant creation of billable hours therefore often takes precedence over the legal needs of clients. Also analogous to buggy whip manufactures, IP lawyers working in law firms have the ability to change to prevent obsolescence. Indeed, these lawyers possess the requisite skills to continue practicing their craft outside of the existing paradigm of the law firm. Still further akin to buggy whip manufacturers, lawyers also have the existing relationships with customers i.e., clients, which gives them a valuable head start over newcomers who wish to enter the IP legal service arena using innovative, but unfamiliar, client service models.

Using the well-known picture of obsolescence presented by buggy whip manufacturers more than 100 years ago, I believe that IP lawyers who recognize that they must embrace innovation in the way they provide IP legal services to clients will be poised for success when their clients decide that the time for change has arrived. On the other hand, lawyers who believe they are in the IP law firm business will invariably be left behind when innovations in client service enter the marketplace that render the law firm business model obsolete.

IP lawyers should not expect that they will be able to predict when their clients will demand change. As with the customers of buggy whip manufacturers, law firm clients will not serve their IP counsel with notice warning prior to taking their business to lawyers who provide them with innovative, and more client-centric, service models. To the contrary, when clients are finally presented with acceptable alternatives, they will naturally migrate to the innovation that best meets their business needs. The result will be that one day, these currently successful IP lawyers will likely wake up to realize that they are losing their clients in droves to lawyers who succeeded in developing and introducing an innovative client service model to the world. And, as most lawyers will tell you, once a client is gone, they are likely gone forever.

Not only will clients fail to announce that they intend to leave their law firm before they do so, they also will not tell their lawyers how you can serve them better. Why should they–they are not in the business of providing legal services. Accordingly, mutually beneficial client service innovations must be generated by and because of lawyer action. But, because of their inherently conservative nature, I believe that many IP lawyers may fail to realize that innovation is critical until it is too late to preserve their client base.

Some might contend that complaints about the billable hour model have abounded for many years, but no major changes have occurred to date, thus indicating that most clients may be all bluster and no action. While it is certainly true that clients exerted no real pressure on lawyers for change in the past, circumstances are markedly different today than before. Disruptive innovation is rocketing through society, and many formerly solid business models, such as newspapers and recorded music, are now teetering on the cusp of demise as a result.

The signals are there that law IP firms that rely on the billable hour/leverage model appear poised to experience significant stress from clients and critics in the near future. Those relying on this model for their livelihood would be well-served to look for innovative ways to address this changing environment. In short, those who think that the billable hour/leverage law firm model will escape the transformative business innovations of the current era are merely “whistling past the graveyard.” IP law firms, as well as other types of law firms, must innovate now and innovate big or I fear they will suffer the fate of the buggy whip makers.

Common Qualities of the Best Law Firms

In my 12 years of practice, I have been employed with a wide variety of law firms. When I decided to open my own practice, I started thinking about the qualities that make up the best law firms. In determining the best law firms do you include things such as employee benefits, firm culture and employee turnover rates? Or do you focus on the qualities that affect a law firm’s most precious commodity – the client? My take on this is that the best law firms employ quality attorneys and staff with the highest of ethical standards and the desire to fight within their ethical bounds for their clients.

One key factor in having a successful law practice is an effective leader. A good leader will have a vision for the firm’s direction, a commitment to serving its clients, and a desire to find like-minded people that believe not only in the clients, but the brand of the firm. I have found in my practice that effective leaders can quickly change with success and growth. They often lose touch with the very people that helped them grow into a successful powerhouse. It is easy to go from a scenario of weekly partner/associate lunches to rarely, if ever, seeing a partner in the office. Effective leaders at the best law firm have a good understanding of the legal work coming out of the office, the overall satisfaction of its clients, and an awareness of the employees’ overall job satisfaction. With success and growth, it is easy to lose touch with these important factors, but good leaders will remain cognizant of these factors, even with exponential growth of the firm.

The best law firms also have compassion for their clients. When attorneys at these firms meet with clients, it’s never about sharing the attorney’s successes. Rather, it’s listening to your clients concerns, determining their overall goal through representation by the firm, and showing empathy towards their situation. Many attorneys look at their clients and see dollar signs. They look at the opportunity to bill or the total fee they will earn on a contingency for a huge settlement. These attorneys fail to recall one of the most basic ethical consideration of attorneys, acting in the best interest of the client. Because at the end of the day, all the billable hours in the world won’t make a practice successful If you don’t satisfy and take good care of your clients. Firms with this mindset often have high turnover rates because they make billing THE priority. They burn their attorneys out and bring in brand new attorneys and start the process fresh with them. This can easily lead to dissatisfaction by clients. They may not know from one month to the next which attorney is representing them.

Another key quality of the best law firms is a narrow focus on a particular area of law. The days of general practitioners is (or should be) gone. Laws are complex and can change in an instant depending on legislation or new case law handed down by appellate courts. The best law firms have focus on one area of law and become very good at it. They are aware of recent changes as well as developing changes in their area of practice. With such a narrow focus, they can change strategy in an instant and become the authority to their clients by showing their knowledge in a particular area of law. Beware of the lawyer who claims to practice in all areas of civil litigation. While it is possible, consider that opposing counsel may have a more narrow focus. They may have that golden nugget of information that can make the case a winner for them and a loser for your client.

There are a number of other factors to consider when trying to determine the best. That may be the discussion for a future article. But those discussed here are, in this author’s opinion, the most important factors to consider when trying to figure out what makes a firm one of the best.

Law Firm Branding – The Danger Of Illusory Brands

Over the last ten years, we have witnessed advances in law practice technology, the expanding roles of paralegals, and the outsourcing of legal work. Yet despite all of these cost-cutting and time-saving advantages, many law firms, especially the large ones, remain struggling for their very survival.

Only a decade ago, law firms were enjoying remarkable levels of growth and prosperity. Firm coffers were full and firms were spending significant sums of money on promoting themselves in order to enter new markets and acquire premium business. Some firms even began experimenting with branding. In those days, branding was mostly viewed as just another form of advertising and promotion. In truth, firm leadership rarely understood the branding process or what the concept of branding was actually intended to accomplish. But it didn’t really matter, revenue was climbing and profitability remained strong. But what so many of these firms didn’t expect was that, in just a few years, our economy would be shaken by a deep and fierce recession, one which would shake the financial foundations of even the most profitable of firms.

For law firms, the recession that began in 2007 had, by 2010, penetrated the most sacred of realms- the proverbial benchmark of a firms standing and achievement- profits-per-partner. For many firms, especially mega-firms, the decline in law partner profits were reaching record lows and it wasn’t long until the legal landscape was littered with failed firms both large and small.

In trying to deflect further losses, firms began to lay off associates and staff in record number. But the problems went much deeper. There simply were too many lawyers and not enough premium work to go around. It was a clear case of overcapacity, and it was also clear it was not going to improve anytime soon.

More than twelve of the nation’s major law firms, with more than 1,000 partners between them, had completely failed in a span of about seven years. Against this background, law schools were still churning out thousands of eager law graduates every year. Highly trained young men and women who were starved for the chance to enter a profession that once held the promise of wealth, status and stability.

As partner profits dwindled, partner infighting grew rampant. Partner would compete against partner for the same piece of business. The collegial “team-driven” identity and “progressive culture” that firms spent millions of dollars promoting as their firm’s unique brand and culture had vanished as quickly as it was created. While financial times were tough, in truth many of the big firms had the resources to survive the downturn. Instead, partners with big books of business were choosing to take what they could and joined other firms- demoralizing those left behind.

To understand why this was happening, we must first remove ourselves from the specific context and internal politics of any one firm and consider the larger picture. The failure and decline of firms was not only a crisis of economics and overcapacity, it was also a crisis of character, identity, values and leadership. Sadly, the brand identity many of these firms pronounced as their own did not match up against the reality of who they actually were. In other words, for many firms, the brand identity they created was illusory- and illusory brands ultimately fracture in times of financial stress.

Ultimately, the branding process must also be a transformative process in search of the firms highest and most cherished values. It is, and must be, a process of reinvention at every level of the firm- especially its leadership. The transformative process is fundamental to building a true and enduring brand. Without it, firms run the risk of communicating an identity that does not represent them, and this is the danger, especially when the firm is tested against the stress of difficult times.

How this miscommunication of identity was allowed to happen varied widely from firm to firm. But generally speaking, while firm leadership was initially supportive of the branding process, in most cases these same partners were rarely willing to risk exposing the firm’s real problems in fear that it would expose their own.

While decline of law firm revenue was clearly attributable to both a bad economy and an oversupply of lawyers, from an internal perspective the firm’s inability to come together and develop effective measures to withstand these pressures could usually be traced directly back to the lack of partner leadership. A firm that proclaims to be something it is not- is inevitably doomed to failure. Say nothing of the psychic damage it causes at the collective level of the firm. It is no different then the psychological dynamics of the person who pretends to be someone he is not- ultimately it leads to confusion, frustration and eventually self-betrayal.

It’s easy to indulge in self-praise when economic times are good. Some partners might even attribute their success to all that clever branding they put into place years before. But, when the threat of financial crisis enters the picture, the same firm can quickly devolve into self-predatory behavior- a vicious cycle of fear and greed that inevitably turns into an “eat-or-be-eaten” culture- which for most firms marks the beginning of the end.

For any firm playing out its last inning, it is simply too late to rally the troops or reach for those so-called cherished values that were supposedly driving the firm’s success. In truth, when times got bad, these values were nowhere to be found, except on the firms website, magazine ads and brochures.

The point is that when a firm is actually driven by its cherished beliefs and core values, the firm will begin to live by them, especially in times of adversity. The firm will pull together and rally behind its leadership, and with clarity of purpose, each person will do what needs to be done to weather the storm. But when there exists a fundamental contradiction between what a firm says they are, and how they actually conduct themselves both internally and to the world- the vendors with whom they do business and the clients they represent- the firm will never reach its full potential. It will remain dysfunctional and it will risk joining that growing list of failed firms.

The financial collapse and deterioration of so many law firms in the past few years is a compelling testament to the importance of insisting on truth and integrity in the branding process.

In 2014, it is clear that business-as-usual in our profession is no longer a sustainable proposition. For this reason I am convinced that firms driven by fear and greed are firms destined to eventually self-destruct. That is because, no matter how much these firms try to brand, they will never be able to brand truthfully, and therefore they will never be able to compete against more progressive and enlightened firms- those that do not worship wealth and power, but rather cherish personal and professional fulfillment.

There is a choice for those who believe their firm is worth saving- reinvent yourself to reflect values that are truly worthy of cherishing, or risk devolving into something less than what you aspire to be and risk your firm’s heart and soul in the process.